Share buybacks have become a highly debated topic in financial circles. The podcast explores the reasons behind their popularity, the controversy surrounding their use, and the potential benefits of new regulation. It also discusses the recent decline in share buybacks and the ongoing debate over prioritizing shareholder value versus long-term growth.
Share buybacks have become a controversial practice in corporate governance, sparking debates about the purpose of a company and the nature of capitalism.
The recent surge in popularity of share buybacks can be attributed to low interest rates, activist investors seeking quick returns, and highly profitable tech companies with excess cash.
Deep dives
The Controversy of Share Buybacks
Share buybacks have become a controversial practice in corporate governance. Companies buy their own shares to return access cash to shareholders. This practice has exploded in popularity in recent years, tripling globally in a decade. The main debate revolves around whether share buybacks are a good use of corporate money, benefiting investors now but potentially robbing future growth. This debate reflects a larger question about the purpose of a company and the nature of capitalism.
The History and Popularity of Share Buybacks
Share buybacks have been used for decades as a way to return money to investors, especially as an alternative to dividends. The recent surge in popularity can be attributed to low interest rates, making buybacks attractive and affordable through borrowing. Additionally, activist investors seeking quick returns have fueled the trend. The rise of highly profitable tech companies with excess cash has also contributed to the prevalence of share buybacks.
Critiques and Risks of Share Buybacks
Critics argue that share buybacks divert corporate money that could be used for investing in people, products, and future growth. Concerns arise when companies take on debt or deplete their cash reserves for buybacks, leaving them with limited resilience. Examples such as travel companies hit hard by the COVID-19 pandemic and General Electric's debt burden highlight the risks of relying heavily on share buybacks. The debate centers around the allocation of corporate profits between investors, workers, and community.
Share buybacks are a strategy companies use to return excess cash to their shareholders. But recently, they’ve exploded in popularity, and that’s sparked strong discussions inside financial circles. The FT’s US financial editor Brooke Masters explains why share buybacks have become so hotly debated.